Economics in a Time of Political Instability

MILAN/STANFORD – Over the last 35 years, Western democracies have seen a rapid rise in political instability, characterized by frequent shifts in governing parties and their programs and philosophies, driven at least partly by economic transformation and hardship. The question now is how to improve economic performance at a time when political instability is impeding effective policymaking.

In a recent article, one of us (David Brady) shows the correlation between rising political instability and declining economic performance, pointing out that countries with below-average economic performance have experienced the most electoral volatility. More specifically, such instability corresponds with a decline in the share of industrial or manufacturing employment in advanced countries. Though the extent of the decline varies somewhat across countries – it has been less sharp in Germany than in the United States, for example – the pattern is fairly ubiquitous.

Over the last 15 years, in particular, increasingly powerful digital technologies enabled the automation and disintermediation of “routine” white- and blue-collar jobs. With advances in robotics, materials, 3D printing, and artificial intelligence, one can reasonably expect the scope of “routine” jobs that can be automated to continue expanding.